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Issues:
1. Taxability of interest received by the assessee on arrears of salary granted by the Court. 2. Interpretation of whether the interest received is taxable income or not. The judgment by the Appellate Tribunal ITAT Amritsar involved an appeal by the assessee against the order of the CIT (Appeals), Jalandhar for the assessment year 1991-92. The grievance of the assessee was that the interest received on arrears of salary granted by the Court was considered taxable income by the authorities, contrary to the decision of the Hon'ble Jurisdictional High Court. The assessee, a Distt. & Sessions Judge, had claimed a higher pay scale, which was upheld by the Hon'ble Punjab & Haryana High Court along with an order for payment of interest at 12% P.A. The dispute arose as the authorities viewed the interest as taxable income, citing statutory provisions and case law precedents. The Assessing Officer and the CIT (Appeals) upheld this view, considering the interest as a taxable receipt related to salary, not deprivation of property. The assessee contended that the interest received was not in the nature of income but a compensation for being deprived of proper salary, as accepted by the CIT (Appeals). The assessee's counsel argued that the interest was granted at the discretion of the Court and not under any statutory provision, hence should not be taxable. Reference was made to relevant case laws supporting the argument that not all receipts are income, and the burden lies on the Revenue to prove taxability. The issue was further debated on whether the interest falls under 'Profits in lieu of salary' as per the Income Tax Act. The Tribunal analyzed various legal precedents, including decisions by the Hon'ble Supreme Court and High Courts, to determine the taxability of the interest received by the assessee. It was observed that the interest granted by the High Court was not for deprivation of property but for delayed payment of salary, making it a taxable receipt. However, the Tribunal noted distinctions in cases where interest was awarded as compensation for deprivation of property, which was held as non-taxable. The Tribunal also highlighted cases where interest was considered a revenue receipt and taxable, based on the circumstances of the case and the nature of the receipt. Ultimately, the Tribunal ruled in favor of the assessee, concluding that the interest granted by the High Court was discretionary compensation for deprivation of property and not taxable income. The Tribunal emphasized that the interest was not foreseen or anticipated by the assessee, distinguishing it from cases where interest was held taxable. The decision was supported by legal interpretations and case law analyses, leading to the allowance of the appeal filed by the assessee.
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